Why Integration Creates Value
The basic benefits and challenges of integrated management were introduced in Chapter
1. To further explain the importance of integrated management, it is useful to understand
that customers have at least three perspectives of value.
The traditional perspective of value is economic value. Economic value builds on
economy of scale in operations as the source of efficiency. Economy of scale seeks to
fully utilize fixed overhead to achieve the lowest, total landed cost. The focus of economic
value is efficiency of productlservice creation. Economic value is all about
doing things as well as possible. The customer take-away of economic value is high
quality at a low price.
A second value perspective is market value. Market value is about presenting an
attractive assortment of products at the right time and place to realize effectiveness.
Market value focuses on achieving economy of scope in productlservice presentation.
The creation of multimerchant shopping malls, large-scale mass-merchandising retail
stores and multivendor e-commerce fulfillment operations are all initiatives to achieve
market value. The customer's take-away in terms of market value is convenient product/
service assortment and choice.
Realization of both economic and market value is important to customers. However,
increasingly firms are recognizing that business success also depends upon a
third perspective of value referred to as relevancy. Relevancy involves customization
of value-adding services, over and above product and positioning that make a real difference
to customers. Relevancy value means the right products and services, as reflected
by market value, at the right price, as reflected by economic value, modified,
sequenced, synchronized, and otherwise positioned in a manner that creates valuable
segmental diversity. In a consumer context, for example, relevancy means transforming
ingredients into ready-to-eat meals. In general merchandise retailing, relevancy
means transforming products into fashionable apparel. In manufacturing and assembly,
relevancy is achieved by integrating specific components into products to increase
functionality desired by a specific customer. The customer's take-away in terms of relevancy
is a unique product/service bundle.
The simultaneous achievement of economic value, market value, and relevancy
value requires total integration of the overall business process and is known as the integrative
management value proposition, as illustrated in Table 11.1.
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